Apple‘s (NASDAQ:AAPL) 2018 iPhone lineup will go down as one of the more turbulent product cycles in the company’s history. Based on Apple’s revised guidance, iPhone revenue in the December quarter fell 15% to approximately $52.2 billion, representing the worst growth in years. The Mac maker experienced several rough quarters of iPhone revenue declines back in 2016, and while price increases drove revenue growth in 2017 and most of 2018. The iPhone XR doesn’t seem to be selling well, even as management continues to defend unit sales of that model.
What does Apple have in store for this year?
What to expect in the 2019 lineup
The Wall Street Journal (subscription required) reports that Apple has another trio of iPhones slated for this fall, including an LCD model to succeed the beleaguered iPhone XR. Despite the XR’s apparent struggles, Apple is sticking with an LCD display because it would be a challenge to change the design at this point. Besides, it’s unlikely that the LCD display, which is much less expensive than OLED panels, is the reason for poor sales. However, Apple is looking to switch completely to OLED displays in its 2020 lineup, according to the report.
Seemingly corroborating other recent leaks, the flagship model is expected to sport a triple rear camera. The other two models, including the LCD model, will have a double rear camera. The iPhone XR currently has a single rear camera. Rivals have been adding an increasing number of cameras, putting pressure on Apple to do likewise. The Journal‘s sources say Apple has been researching the camera features found on those models, particularly handsets from Chinese manufacturers that have eaten into its market share in The Middle Kingdom.
Apple is even thinking about removing some features, such as 3D Touch — which was not included in the XR — in an effort to reduce costs. What’s less clear is if Apple would use cost savings to pad its margins or pass along the savings to consumers in the form of lower prices.
Separately, Barclays also released a research note today outlining expectations that the next iPhone will include support for the latest Wi-Fi standards, as well as an improved TrueDepth camera system that delivers better performance of Face ID.
But how much will they cost?
Pricing will be just as important as what features the 2019 iPhones have. Apple has now admitted that upgrade activity is slowing, even in developed markets, and it’s painfully clear that high prices combined with increasingly incremental feature upgrades is a recipe for poor sales. The challenge in walking back pricing would be how to effectively justify that to consumers, after consistently defending the price increases.
While still wildly profitable, the iPhone segment’s most robust growth days could be over. But with Apple shares trading under 13 times earnings right now, it’s not as if the market is pricing in growth expectations.
Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.